Going for an insurance policy? Look beyond life, health

What comes to your mind first when you hear the term 'insurance'?

Most would say Life Insurance Corporation. Some others are aware only about cover against the risk of death or life insurance and investment plans like endowment and unit-linked ones.

A small segment may be aware about health insurance. Unfortunately, then too, there are only a percentage who have the most essential covers -- life and health.

While having the basic covers is more important, also from the financial planning aspect, there are other significant risks also that you need to cover yourself against. The risks of death and disability (loss of income) can never be ruled out and hence, you should be prepared to insure loss of income, debt repayment and so on. Again, only once you have insured your life and risk of hospitalisation.

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Here is some help

Credit shield: These are called Mortgage Redemption Schemes. The ones offered by banks fall under a group insurance scheme for borrowers of housing or vehicle loans. Typically, these are single premium term plans or pure life covers.

The lender pays the premium to the insurance company as soon as your loan gets sanctioned. And adds the cost to your loan, which you pay in small parts with the equated monthly instalment (EMI) of the loan. Such covers offer a sum assured worth the loan amount.

You can choose between reducing and level covers. Reducing covers and lower the premium as the outstanding amount (principal) reduces.

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A level cover stays stagnant even if the loan amount reduces, like a term plan. Insurers obviously advise reducing covers as it easy on your pocket.

Borrowers who have not bought a loan cover can purchase one within four to six months of starting the loan repayment, but on certain conditions. It provides you the ease of documentation, convenience of one-time payment and getting everything under one roof when you buy from the lender. But it is not compulsory to buy a loan cover from the lender only.

You can shop for a regular term plan separately.

This is how it works. Insurers decide on a common group depending on the age groups their banking partners lend to. And given there are groups across ages, professions and so on, it is works out cheaper.

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Hospital cash plans: There are hidden costs to hospitalisation which are not covered by standard health insurance plans. For instance, expenses incurred by family members on conveyance (to and fro to the hospital), their accommodation and so on is not covered under a basic health policy.

One has to buy this as a rider or add-on. It provides the insured with a daily cash benefit for each 24 hours spent in the hospital, typically for up to a week.

For this purpose, the hospitalisation should be either in a registered hospital and due to sickness or accident. This product is not a substitute for health insurance, rather this supplements the existing insurance covers bought individually or provided by the employer. This benefit is over and above the daily benefit and is payable once in the policy period. One can also avail income tax benefits on premium paid under section 80D of the income tax act.

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Personal Accident: Personal accident policies cover accidental death, loss of limbs, permanent total and partial disablement as selected and granted by the insurance companies based on underwriting norms. Your claim under this plan will be qualified only if the you sustain bodily injuries resulting into death or disability.

One has to buy this as a rider as it's not sold in-built in health policies. On payment of additional premium, medical expenses incurred can be covered under this rider. There are no tax benefits for the premium paid here. In case of family package covers, the age of children should be between 5 and 19 years.

The age ceiling of 70 years can be relaxed in special conditions subject to suitable premium loading. Sum insured is typically based on the income, age, occupation and tenure of the policy. Generally personal accident policies are maximum for one year only. However, depending upon the requirement of the proposer it can be offered for a period which could even be lesser than 12 months.

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Critical Illness: These provide additional finances if you have to be kept at home for treatment or there is a loss in income or to repay debt.

The diseases covered here include cancer, first heart attack, kidney failure, major organ transplant, multiple sclerosis, paralysis, coronary artery bypass surgery, and so on. Here, the claim can be made only for pre-defined illnesses.

Critical illness covers can be taken in two ways -- a standalone policy from any general insurance company or as riders on a life insurance policy. Riders come cheaper because they come as an add-on.

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The premium is capped at 30 per cent of the base policy. But, there are some issues. Once a claim has been made under the rider, the base policy is also terminated.

Also, if the insured expires within 2-3 months of making a claim under the rider, the sum paid under will be deducted from the death benefit.

Typically, the insurance plan ceases once the benefits have been paid to the insured, although a few insurers offer to cover the insured for the remaining illnesses at a lower sum assured and revised premium rates.

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Retirement Plans: Presently, there are none in the market as the insurance regulator is yet to come out with a yet another revised guidelines for pension products, both traditional and unit-linked. But, these are helpful for post-retirement life as you have to buy annuity from 2/3rd of the accumulated amount and that provides you with an income after you regular income stops. These are also tax friendly.

The insurance regulator wants companies to guarantee returns on the unit-linked returns, which companies were opposed to.

The Insurance Regulatory and Development Authority (Irda) then asked them to give a non-zero returns but has not approved any products.

The writer is a freelancer.